EMPG agrees $650m cash injection

EDUCATION MEDIA Publishing Group (EMPG), the heavily indebted US-based publishing company led by Cork businessman Barry O’Callaghan, confirmed last night that it has agreed a $650 million cash injection with investors as part of a major financial restructuring that will be completed by March 9th.

EMPG said the deal would result in about 60 per cent of its $7 billion debt being eliminated and swapped for equity in the business, while its annual interest bill of $450 million will be reduced by more than 75 per cent. It will also leave US hedge fund Paulson Co as the biggest shareholder in the business.

Senior lenders have agreed to convert more than $2 billion of secured debt into equity. In addition, all of Houghton Mifflin Harcourt’s (HMH) $2.1 billion mezzanine level secured debt will be exchanged for equity and warrants to purchase additional equity. HMH is a Boston-based subsidiary of EMPG.

As a result, a group of Irish private investors in EMPG, which was put together by Dublin-based stockbroker Davy, will have their equity stake wiped out. Mr O’Callaghan’s 21 per cent stake in the business – worth more than $1 billion on paper in August 2008 – will also be marked down to zero. The Davy investors put $170 million into EMPG in 2006.

The statement last night said that existing EMPG equity holders will receive “nominal consideration in warrants that will enable them to participate in 5 per cent of the value created when the enterprise value exceeds the original value of the company at the time of the merger of Houghton Mifflin and Harcourt [in 2007]”. This figure was $10 billion.

The investors shareholdings in Education Media Publishing Group International, a separate entity that holds contracts in China, the Middle East and elsewhere, are unaffected by this restructuring.

EMPG said the company’s 210 employees in Ireland would be unaffected by the restructuring. The company also announced the establishment of a $100 million innovation fund to “incubate the next generation of innovation in education”.

Commenting on the restructuring, Mr O’Callaghan said: “With this important development, HMH will have successfully completed a comprehensive balance sheet deleveraging that places it on the strongest financial footing in the company’s history and positions it for continued success.”